20 August 2024

As the world’s second-largest coffee exporter and leading producer of Robusta coffee, the Vietnamese coffee industry is facing pressure from both inside and outside the country.

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Coffee production down, prices up

Vietnam's coffee industry is an important pillar of the global coffee market and makes a significant contribution to the national economy.

Vietnam is currently the world's largest producer of Robusta coffee, with about 97% of its output being Robusta. The remainder includes Arabica and other specialty varieties.

Although domestic coffee consumption is increasing, exports remain the main source of income for Vietnam's coffee industry.

Coffee exports are estimated to total 25 million bags (60 kg/bag) in the 2023-2024 crop year, down about 10% from last year. Despite the decrease, Vietnam is still the second largest exporter of Robusta coffee globally, after Brazil.

According to Dr. Devmali Perera, Lecturer in Finance at RMIT University, the Vietnamese coffee industry is facing significant challenges and changes amid market volatility and rising environmental pressures.

“The Vietnamese coffee market is facing two main challenges this year: reduced production and rising prices. Prices are rising due to increased demand both domestically and internationally, especially in Southeast Asia. On the other hand, adverse weather conditions and supply chain disruptions are contributing to the decline in production,” said Ms Perera.

Vietnam’s coffee production has been increasingly affected by prolonged drought and high temperatures, which have reduced yields and affected crop quality.

Dr Majo George, Senior Lecturer in Supply Chain Management and Logistics at RMIT University, said that climate stress is particularly acute in the Central Highlands, where severe drought has devastated many coffee plantations and exacerbated water shortages.

Geopolitical tensions impact global supply chains

Meanwhile, global supply chains are facing significant disruptions due to container shortages and port congestion, which are delaying shipments and increasing costs. These challenges are exacerbated by geopolitical tensions around the world.

“Such logistical barriers make it difficult for Vietnamese coffee to reach international markets on time, affecting the ability of exporters to meet market demand,” said Dr. George.

Inefficient value chains also pose some challenges. Many smallholders in Vietnam still rely on traditional farming methods, resulting in inconsistent quality and output. The lack of advanced facilities for post-harvest processing and preservation can significantly reduce quality.

“New environmental regulations, especially those from the European Union related to pesticide residues, require producers to adjust their farming methods and increase compliance costs. This puts additional pressure on smallholder farmers, who may not be able to adapt quickly,” said the RMIT senior lecturer in Supply Chain and Logistics Management.

Despite having more than 700,000 hectares of coffee land, Vietnam is struggling to find suitable land to increase production, due to concerns about deforestation and pressure to meet climate-related targets.

According to Dr Devmali Perera, many domestic coffee farmers have switched to growing durian due to increasing demand from the Chinese market for the fruit. This change has further reduced the area available for coffee production.

In addition, Vietnamese farmers are also facing rising production costs, mainly due to rising fertilizer and labor costs. Rising domestic coffee prices may offset some of the production costs for farmers. However, rising production costs are causing difficulties for exporters.

“Exporters are currently struggling with financial pressures, product shortages and high transportation costs, making them more cautious about accepting new orders. Meanwhile, increasing demand amid supply chain constraints is creating more price volatility and uncertainty in the coffee market,” Perera said.

Source: Tai chinh tien te